Myths of the Markets

Despite their reputation for ruthless efficiency, financial markets remain awash with folklore. A few months back, we touched on the Santa rally, the period of time around Christmas where the markets allegedly see a rise. Shares did move slightly higher last December, but it was arguably due to the over-promising Trump administration than a man in a red suit and team of reindeers.

So as the daffodils bloom and Spring settles amongst us, are there any seasonal factors that can affect the markets at this time of year?

There is an old saying that states: “Sell in May, go away and come back on St Leger’s day”. St Legers day refers to the date of a Doncaster based horse race which has been run every September since 1776. Traditionally, this race marked the end of the British summer for the aristocrats and bankers of the day!

The idea stemmed from the fact that historically the summer was considered a more volatile period. Big corporate actions such as mergers were less likely to happen. Combine this with the fact that these were the days when people left London for months at a time in the summer and you can see why market volumes appeared thinner within that season.

However, in today’s continuous market that is increasingly traded by computers rather than real people, these ideas are now fairly redundant. This however doesn’t stop some investors still buying into the idea. So what does the data tell us?

Let’s take the FTSE-100 and go right back to 2001. If you were to have sold the index on the first trading day of May and bought it back again on the first trading day of September every year up until now, you would have made money on 11 of those 16 occasions. However, the average profit would be 130 points, which works out at about 2%.  As great as this might sound, it’s important to remember the cost of selling then buying back your shares, the government’s 0.5% stamp duty on all share purchases and the fact that if you’re out of the market, you won’t be picking up any dividends, either.

Once Easter is out of the way, it’s a sure bet that the personal finance sections of the newspapers will be talking once again about the idea of selling in May. But, even if the headline statistics tell you a story that warrants closer attention, recent history shows us that on average any benefits will be eroded by transaction costs, meaning you’re likely to be no worse off in the long run by just sitting tight over the summer. 

For information purposes only, not intended to constitute financial advice from us. The customer should assess the risk of  potential loss carefully and individually before investing in any financial products. Dabbl Group Limited is authorised by the FCA under the reference numbers 767263 as an appointed representative of its Principal firm VIBHS Financial Ltd, which is authorised and regulated by the Financial Conduct Authority under the reference number 613381.

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